House Democrats Unveil $825 Billion Stimulus Plan

January 15, 2009 06:00 PM
 
via a special arrangement with Informa Economics, Inc.

 

Changes will be made to initial plan

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


House Democrats unveil stimulus package. House Speaker Nancy Pelosi (D-Calif.) on Thursday outlined an $825 billion economic stimulus package that she said would be marked up in committees next week.

The plan includes $550 billion in new spending and $275 billion in tax cuts, with major investments in roads, education and health care, as well as aid to states and tax relief of up to $500 per worker.

Clean energy initiatives also will get billions of funding dollars, along with money for construction of science facilities and broadband Internet.

The unemployed will get extended benefits throughout 2009 in the areas of health care and food stamps.

Pelosi said stressed that the package is a House proposal. "This is the first step in the process," she said. The Senate will move its own bill (S 1) soon.

Among items that did not make it into the measure is another patch to the Alternative Minimum Tax (AMT), which would have either swollen its size or crowded out other tax cuts.

Republicans were quick to criticize the package. And, some Democrats complained about the size and scope of the proposal, but Democratic leaders said they will get the package through Congress by the middle of February. To ease concerns about the cost, Democratic leaders noted the spending and tax provisions are meant to be temporary. President-elect Barack Obama told Washington Post reporters and editors earlier in the day that he will hold a "fiscal responsibility summit" in February with members of Congress to hear and discuss ideas.

Despite some Republican complaints that the proposal is too large, House Appropriations Chairman David R. Obey (D-Wis.) who assembled the $550 billion spending part of the bill, said that the package may not be enough. "I think you have to look at this bill not as a salvation for the economy by any means," he said. It is "simply the largest effort by any legislative body on the planet to try to take government action to prevent economic catastrophe, and even that may be insufficient standing alone and we may need to do even more at a later date."

The $275 billion tax portion of the package includes President-elect Barack Obama's "Making Work Pay" tax credits and an expensive net operating loss carry-back provision for businesses.

The following is a summary of some of the major provisions in the House proposal, based on reports from the Congressional Quarterly:

  • Aid to states: Obey estimated that states, local governments and the nonprofits that assist them would receive $318 billion under the bill. Most of that funding would be directed toward health and education programs. The bill includes $87 billion for Medicaid programs. Several education initiatives are in the bill, including $41 billion for local school districts that would flow through a few different programs.
  • Food and agriculture aid, and unemployment assistance: The food stamp program would receive $20 billion, while $36 billion is included for extending and expanding unemployment benefits. Also included is $726 million to offer free dinners to children after school and increase the reimbursement rate for school snacks. A coalition of school cafeteria operators, anti-poverty advocates and food industry groups is urging the Obama transition team to inject $20 billion over five years into the budget for such programs, as well as school lunches and breakfasts, summer food services, and other child nutrition initiatives. Obama, before he was elected, promised to end childhood hunger in the United States by 2015. Under the stimulus, states would get $100 million to upgrade computer systems for administering the Women, Infants and Children (WIC) program, which helps feed low-income mothers and their young children. Also, the legislation proposes $200 million in grants to programs that deliver sustenance to the elderly. Agricultural programs for water systems, business loan guarantees and community buildings would receive nearly $2 billion, including $1.5 billion for water infrastructure systems; $200 million to help cover $1.2 billion worth of backlogged applications for grants and loans to community facilities, including health care clinics, schools and fire stations; and $100 million to guarantee $2 billion in loans for farming, ethanol production and other rural business activities.
  • Infrastructure: The bill includes significant funding for infrastructure projects, such as $30 billion for highway construction, $10 billion for mass transit and rail, and $19 billion for wastewater, flood control, and environmental restoration projects.
  • Energy, research: There is an emphasis on renewable energy and efficiency programs, such as modernizing the electrical grid, as well as scientific research. About $74 billion would go toward energy projects, including $32 billion for new "smart-grid" electric transmission systems and new vehicle battery technology; $20 billion would be used for tax breaks for electricity generated by renewable sources; and $16 billion would go to public housing for energy efficiency retrofitting and weatherizing modest-income homes. Another $31 billion would be used to make federal infrastructure more energy-efficient. Overall, that comes to about $20 billion more in energy provisions than what most lawmakers and interest groups said they were expecting in the legislation. Currently, the only energy provision in the Senate stimulus outline is an extension of existing short-term tax breaks for electricity generated from renewable sources. It makes no mention of new funding for grids or batteries.
  • Tax proposals: The $275 billion tax break package in the House plan would give President-elect Barack Obama much of what he has asked for. The centerpiece is a "Making Work Pay" payroll tax credit of $500 for individuals and $1,000 for couples. The credit will begin to phase out at the $75,000 income level for individuals and $150,000 for couples. The proposal would allow money-losing companies to get instant refunds for taxes they paid over the past five years. Current law permits such net operating-loss carryback for just two years. The plan prohibits companies from benefiting from the provision if they receive federal financial bailout funding. Mortgage giants Fannie Mae and Freddie Mac, which were recently placed under federal receivership, would also be barred. Absent from the package is a tax break for companies that hire new employees or avoid laying off existing employees. The Senate will likely add an AMT patch to its version of the stimulus plan. The House plan would expand the Earned Income Tax Credit for low-income wage earners and broaden eligibility for the child tax credit for low-income families. The bill will also will include a 40 percent refundable, $2,500 tax credit for the first four years of higher education expenses.  Businesses would get  a bonus depreciation for investing in new plants and equipment.

    To help homeowners, the plan would remove the repayment requirement on the $7,500 temporary first-time homebuyer credit enacted last summer. The credit applies to homes bought this year before June 30.
  • For "green" businesses, the House proposed a package of energy tax incentives, including a three-year extension of the renewable-energy production tax credit.
  • The plan also takes some things away. It would repeal a Treasury Department ruling that facilitated bank mergers by allowing the broader use of tax losses. The ruling drew criticism late last year as Wells Fargo announced its plans to take over Wachovia bank and benefit from the provision. But the repeal would be prospective, meaning it would not affect deals already made.
  • To help states and municipalities, the House plan  would allow financial institutions to purchase state and local bonds. The package also would provide tax-exempt bonds and tax credit bonds to economic "recovery zones." States and large municipalities would be automatically allocated the bonds based on the number of unemployed people in their areas.
  • For government contractors, the bill would defer, for one year, a requirement that 3 percent of their payments be withheld by the government to help prevent tax cheating.
  • Trade Adjustment Assistance programs, for workers whose job losses are linked to increased competition from trade, would be expanded. Service workers would be covered for the first time, more manufacturing workers would be eligible and job training funds would triple.

Comments: Pelosi is very correct in her assessment that this is only a "first step" when it comes to the stimulus package. And about the only thing that is certain about the plan at this point is that this package will be changed by the time that it lands on President Obama's desk.


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 

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